With the growing rates of ID theft and tax refund fraud, thieves have taken their crimes to even the state income tax level in order to make fast money. One state has implemented a computer system to help prevent tax refund fraud, but the end result has been a slower payout of as many as one hundred thousand refunds, a delay which is costing the state hefty penalties in interest.
New algorithms put in place on the state of Alabama’s revenue department computers are meant to catch inconsistencies that could red flag a refund, and the end result has been a slowing down of some of the state’s households’ refunds. While 1.85 million returns had been filed in 2014, only 1,063,768 had been issued by August.
So what happens to those citizens who are still waiting for a refund? The state of Alabama will allot a 3% interest on any unpaid refunds. According to Julie Magee, Alabama’s state revenue commissioner, the interest that the state will have to issue is a small price to pay for better security measures that prevent the loss of millions of dollars in fraudulent refunds.
Earlier this year, Alabama began the prosecution of a nine-woman tax fraud and identity theft ring in its state, one that specifically targeted soldiers and children by accessing their personal data through computer systems that stored the information. The criminals took in over $20 million dollars in fraudulent refunds, mostly of soldiers who were deployed to Iraq and Afghanistan, before they were caught. This type of crime has weighed heavily on the state’s revenue commission, who felt better security measures were needed.
While these measures are happening at the state revenue office level, the IRS is already scrutinizing its systems to prevent federal tax refund fraud. The problem has become so widespread that the IRS has paid out as much as $4 billion in a single year in fraudulent tax refunds to identity thieves.
Contributing to the delay this year was the fact that the federal government began processing federal tax returns about three weeks later than usual, but the state’s computer system enhanced that delay for an estimated 100,000 refunds. According to state law, interest must be paid on those refunds, but that’s an expense that the revenue commissioner feels is worth it to prevent refund fraud. Plans are already in place to restructure the algorithms so that next year’s refunds experience less delay.
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